RBI stresses on need to check inflation expectations

Published: Friday, October 2, 2009, 13:25 [IST]

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Gangtok (Sikkim), Oct 2 (ANI): Reserve Bank of India (RBI) Governor Duvvuri Subbarao has said the Central bank needs to control inflationary expectations and support growth, as signs of recovery and price pressures raise concerns that the policy may be tightened in late 2009 or early 2010.

"We will take into account the complete picture. We will take into account the need to support recovery. We will also take into account the need to contain inflationary expectations and make a judgement and come out with a policy on October 27," said Subbarao after a central bank board meeting here.

Data on Thursday showed annual inflation running at 0.8 per cent in mid-September, with food prices rising by more than 16 per cent due to a poor monsoon.

The economy grew by 6.7 per cent in 2008-09, sharply lower than nine per cent or more in the previous three years. The RBI estimates it to grow at around 6 per cent in 2009-10.

"We will be proactive. We will manage liquidity actively. We will ensure that there is sufficient liquidity to meet the government borrowing requirement plus private credit demand to the extent that it grows from the current level," he said.

He said the RBI would hold bond buyback auctions when needed to help manage the government's record borrowing programme in 2009-10, but would not be setting a target for purchases in the second half of the fiscal year as it had done for April-Sept.

The RBI had set a buyback target of 800 billion rupees of bonds for the first half of 2009-10, but ended up buying only 575 billion rupees of bonds.

The Government plans to borrow 4.51 trillion rupees through bonds in 2009-10, including 1.23 trillion rupees between October and arch. (ANI)